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GLOBAL MARKETS-World stocks at high, euro jumps on ZEW

Published 01/18/2011, 07:26 AM
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* World stocks at new 28-month highs

* Euro gains, Russia says may buy euro rescue fund debt

* Wall Street set to open higher

By Jeremy Gaunt, Europe Investment Correspondent

LONDON, Jan 18 (Reuters) - - World stocks hit a fresh 28-month high on Tuesday, while the euro climbed on new evidence of robust growth in Germany and signs that policymakers will eventually firm up plans to ease the euro zone's debt crisis.

Wall Street looked set to open higher, adding to its relatively solid start to the year.

European finance ministers agreed on Tuesday to take their time over beefing up a rescue fund for indebted euro zone countries and delay publishing new stress tests on the region's shaky banks until the second half of the year.

Russia, however, said it may be interested in buying bonds from the fund, the European Financial Stability Facility (EFSF).

The euro rose at one point more than 1 percent against the dollar and was later up 0.8 percent, above $1.34.

Germany's ZEW investor sentiment index surged for the month as expectations increased that Europe's biggest economy's powerful export engine will generate new jobs and investments.

Investors, however, remain keen to see euro zone countries provide more money for the EFSF to ensure that there is enough to cover any contagion into large economies such as Spain.

Analysts in a Reuters poll expected euro zone policymakers to increase the firepower of the EFSF by 260 billion euros to reach 700 billion euros.

It appeared, however, that EU ministers would not come up with a new package until leaders' meetings in February or even March. Investors have nonetheless been stepping back from their worst case scenarios vis-a-vis the crisis.

"Players are not too keen to push the euro much lower," said Paul Mackel, director of currency strategy at HSBC. "I am not too sure if it has the legs to test recent highs given all the uncertainty surrounding talks on the euro zone safety fund."

Euro zone government bonds sold off slightly, lifting yields.

NEW HIGHS

World stock markets, meanwhile, focused on broader signs of an improved outlook for global economic growth and positive earnings reports.

MSCI's all-country world index touched levels last seen in late August 2008. It was up 0.6 percent on the day.

Developed markets outperformed emerging bourses, continuing recent trends. Attention has shifted among some investors towards recovering developed economies and away from emerging markets, which are seen as a slightly crowded trade.

Goldman Sachs told an investor conference on Monday, for example, that it expected U.S. and Japanese stocks to outperform in the first half of 2011, with European and emerging stocks taking over in the second.

The FTSEurofirst 300 was up more than 1 percent at 28-month highs with mining stocks leading the way.

"The markets are waiting for an opportunity to move ahead rather than looking for an opportunity to take profits," said Mike Lenhoff, chief strategist at Brewin Dolphin.

"The backdrop is still very supportive. This week is a very big week for corporate earnings in the U.S. and on balance, the results should be quite good."

Japan's Nikkei earlier closed up 0.15 percent.

(Additional reporting by Anirban Nag and Atul Prakash; Editing by John Stonestreet)

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